By CIOInsider Team
 

Saving tax feels good. Everyone wants to pay less to the government and keep more money in their pocket.

Term insurance helps you do exactly that. But tax benefits mean nothing if the company does not pay your claim when needed.

This is where the claim settlement ratio becomes crucial. Let us understand both these important aspects clearly.

Understanding Term Insurance Tax Benefits

The government encourages people to buy insurance. They give tax breaks to make it more attractive.

Section 80C Deduction on Premium

Every rupee you pay as term insurance premium qualifies for tax deduction. Up to 1.5 lakh rupees per year reduces your taxable income.

Let me explain with an example. You earn 10 lakh rupees yearly. Normally, you pay tax on the full 10 lakhs. But you paid 25,000 rupees as an insurance premium.

Now you only pay tax on 9.75 lakhs. That 25,000 gets deducted from taxable income. For someone in a 30 percent tax bracket, this saves 7,500 rupees in tax.

Your actual insurance cost becomes only 17,500 after tax savings. Good deal.

Section 10(10D) on Death Benefit

When your family receives the claim amount, it comes completely tax-free. They get the full sum assured without any deductions.

If your 1 crore policy pays out, your family receives the full 1 crore. Not 90 lakhs after tax. Not 85 lakhs. The complete 1 crore stays with them.

This makes a huge difference. In times of crisis, every rupee counts. Tax-free payout means maximum financial support for your family.

Conditions Apply

These term insurance tax benefits have some rules. The premium should not exceed 10 percent of the sum assured for policies bought after 2012.

For a 1 crore policy, your premium should be less than 10 lakhs yearly. This is never an issue with term plans since premiums are always much lower.

But traditional policies sometimes have high premiums. For those, tax benefits might get restricted if the premium crosses this limit.

Additional Tax Savings

If your employer pays part of your insurance premium, that amount is also tax-free up to 25,000 rupees under Section 80D.

Some companies offer this as part of the salary package. If yours does, take full advantage. More tax savings for you.

Why Claim Settlement Ratio Matters More

Tax benefits sound attractive. But what is the point if your family never gets the claim money?

What This Ratio Tells You

The claim settlement ratio shows how many claims a company actually pays out of total claims received.

The company got 1,000 claims last year. They paid 970 of them. Their ratio is 97 percent. Simple math.

This number tells you the truth about a company. Will they pay your family, or will they find excuses to reject?

Where to Check This Number

IRDAI publishes annual reports with claim settlement ratios for all insurance companies. You can download these reports from their website.

Many financial websites also list these ratios. Just search online. You will find updated numbers easily.

Insurance companies with good ratios proudly display them on their websites. If you cannot find it easily, that itself is a warning sign.

What Counts as Good Ratio

Above 98 percent is excellent. The company rejects very few claims. You can trust them.

Between 95 to 98 percent is good. Most claims get paid. Reasonable choice.

Between 90 to 95 percent is average. Some concerns, but not terrible.

Below 90 percent is worrying. Too many rejections. Avoid such companies.

Why Companies Reject Claims

Hidden Medical History - Hiding health issues to save premiums backfires badly. Companies investigate and reject claims when they find undisclosed diseases. Always be honest about smoking, diabetes, surgeries, everything.

Incomplete Documentation - Missing papers like death certificates, policy documents, or medical records stop claims. Keep everything organised and tell family where to find them.

Lapsed Policy - Missed premium payment? Coverage stops immediately. No payment during the lapsed period. Set auto-debit to avoid this.

Suicide Clause - Not covered in the first 1-3 years, depending on policy. After that period, even suicide gets covered.

Using Both Factors to Choose Wisely

Here is a smart approach to pick your policy.

●Step 1 - Set Your Budget - Decide the premium you can afford, then calculate the real cost after tax savings (example: a 25,000 premium costs only 17,500 after tax benefit).
●Step 2 - Shortlist High Ratio Companies - List only companies with a claim settlement ratio above 95 percent, drop everyone below that mark.
●Step 3 - Compare Premiums - Check what your shortlisted companies charge, and remove those that are way beyond your budget.
●Step 4 - Read Customer Reviews - Spend 30 minutes checking online forums and review sites to see real customer experiences with claims.
●Step 5 - Make Final Choice - Pick the company offering the best balance of good claim ratio, affordable premium after tax benefit, and positive customer feedback.

Final Thoughts

Term insurance tax benefits make the policy more affordable. You get protection and save tax both. Good combination.

Pay slightly more premium if needed for a reliable company. That extra cost is nothing compared to the security of knowing claims get paid. Choose companies with proven track records, not just the cheapest option available.